The Philip Morris case illustrates some wider dangers for public health from trade agreements

Efforts by the tobacco company Philip Morris to claim hefty compensation for Australia’s plain packaging laws under secretive legal processes should alarm those with a concern for public health, according to Dr Patricia Ranald, Convenor of the Australian Fair Trade and Investment Network (AFTINET) and Research Associate, University of Sydney.

The case also has implications for rural health and our access to affordable medicines, she says, and shows the critical importance of excluding investor state disputes from trade agreements.

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Why the Philip Morris case raises the alarm for rural health and wider public health concerns

Dr Patricia Ranald writes:

The Philip Morris company is suing the Australian government in an international tribunal under the terms of an obscure Australia Hong Kong investment agreement, alleging that Australia’s 2011 tobacco plain packaging legislation will harm its business and that it deserves to be compensated millions, if not billions of dollars.

The plain packaging legislation had the support of all parties in the Australian Parliament. Tobacco companies, including Philip Morris, then challenged the legislation in the High Court and lost. They alleged that the legislation was a violation of the Australian Constitution because it was an acquisition of their intellectual property on unjust terms, and they deserved compensation.

Despite the democratic passage of the legislation through the Parliament and its validation by the highest Australian court, Philip Morris is still seeking to overturn these democratic decisions using a process contained in an obscure Hong Kong-Australia investment agreement.

Known as investor state dispute settlement, this process allows a single foreign investor to sue government for damages in a specially constituted international tribunal if a law or policy harms their investment.

And why Hong Kong? Philip Morris is a US-based company, but the US-Australia free trade agreement does not have investor state dispute settlement, which was hotly debated during the negotiations in 2004, and even the Howard government did not agree to it. Philip Morris rearranged its assets to become a Hong Kong investor in Australia, so that it could use the process in the Hong Kong agreement. See http://aftinet.org.au/cms/sites/default/files/Leesburg%20Ranald%20forum%20paper%20090912.pdf

Why does Philip Morris think it can win after losing in the Australian High Court?

Quite simply, the rules of international investment tribunals suit international investors, because they lack the transparency and independence of national court systems. The hearings and transcripts are not made public unless both parties agree. The tribunals lack judicial independence, since advocates can also be arbitrators, and arbitrators are paid by the hour. There is no system of precedents, and no appeals, so decisions lack consistency. And the tribunal’s main focus is whether the investor has been harmed, not whether the legislation is in the public interest.

A recent study by the Transnational Institute in Amsterdam has documented many case studies of these problems, with cases involving public health and environmental regulation. Even if investors lose, governments have to pay millions in arbitration costs and legal fees. See http://www.tni.org/ProfitingFromInjustice.pdf

So we discover that the Australian Government requested that the hearings to be open to the public (and for transcripts of those proceedings to be published). But Philip Morris refused to agree, so under the rules the request was denied.

The Government is challenging the jurisdiction of the tribunal, as well as the substantive issues. Future hearings are scheduled for February, July and September, so it promises to be a long drawn out process. Since both the arbitrators and advocates are paid by the hour, this means the legal fees alone will amount to millions of dollars.

Given this experience, it is no wonder that the Australian government now has a policy to oppose investor state disputes in any trade agreements. It is sticking to this policy in the Trans-Pacific Partnership agreement (TPPA) negotiations with the US, New Zealand and Asia other Asia-Pacific countries, and in its negotiations for the Korea-Australia free trade agreement.

Rural health concerns

Some farmers’ organisations have been lobbying the government to abandon its policy for the Korea free trade agreement, because they want the agreement to be concluded quickly, to give them greater access to Korean markets. See http://www.beefcentral.com/p/news/article/2413

This is a mistaken and short-sighted argument, which if successful would come back to haunt rural communities. Investor state disputes would mean that Australian public policies in areas like regulation of land use, quarantine rules and low medicine prices through the Pharmaceutical Benefits Scheme and other policies which benefit Australia’s rural communities could be challenged, at a cost of millions to the taxpayer.

Two recent cases lodged under the investor dispute rules of the North American Free Trade Agreement demonstrate the potential harm to rural communities.

A US mining company is suing the Quebec provincial government for S250 million over their decision for a moratorium on hydraulic fracking for coal seam gas. Farmers in NSW have influenced the NSW government to have a similar moratorium to examine the environmental and land use implications of hydraulic fracking.

The second case involves the cost of medicines. US pharmaceutical company Eli Lilly has lodged a claim against a Canadian decision to deny a patent for a “copycat” drug, and to allow cheaper generic versions of the drug on to the market. This benefits both Canadian consumers and the Canadian public health system.

Tobacco companies are rogue corporations who have been knowingly marketing addictive poison to minors for decades. They are using legal loopholes to exploit a trade agreement in ways that were not intended. We should let Hong Kong know of our intention to withdraw from the relevant parts of the agreement and start renegotiating. In the meantime we should retrospectively legislate to nullify that part of the agreement. We owe Big Tobacco nothing.

As an international (and NAFTA) lawyer, there are some issues with these statements that I feel compelled to point out. The facts, features and practice of the investor-state dispute mechanism should be identified and clarified- without undue fear-mongering.

“Quite simply, the rules of international investment tribunals suit international investors, because they lack the transparency and independence of national court systems.”

International tribunals frequently allow submissions by amicus curiae (namely, from third parties, such as NGOs) throughout the proceedings. These opportunities are usually offered at an advanced stage of the proceedings, once the parties’ evidence and submissions have been exchanged. Investor-state tribunals frequently publish both their procedural and substantive decisions to the public.

“The tribunals lack judicial independence, since advocates can also be arbitrators, and arbitrators are paid by the hour.”

There are safeguard mechanisms in place within the arbitral process to ensure that the parties appoint an independent arbitrator. It is customary for an arbitrator, upon his or her appointment, to file a declaration of independence, stating whether any conflicts of interest exist. Further, an arbitrator can be challenged throughout the arbitral process for any lack of independence.

“There is no system of precedents, and no appeals, so decisions lack consistency.”

While it is correct to state that tribunals are not bound to follow previous decisions, the position and approach taken by most arbitrators is to rely on those decisions as a form a body of jurisprudence (often referred to as the civil law doctrine of jurisprudence constante). Indeed, not being strictly shackled by restrictive legal precedent is an advantage of the investor-state mechanism, which allow arbitrators to take each case on the merits and make a fair and equitable decision.

“the US-Australia free trade agreement does not have investor state dispute settlement, which was hotly debated during the negotiations in 2004, and even the Howard government did not agree to it.”

There were various factors in play when it was decided that the US-Australia Free Trade Agreement would not include an investor-state dispute resolution process. Like any commercial agreement between two parties, it was a compromise between the parties that resulted in the FTA’s current form. In this case, Australia’s demand for sugar access over and above the existing US tariff-rate quotas led to a tradeoff in the US not adopting investor-state dispute settlement. It is predicted that a similar tradeoff may arise between the parties throughout the negotiation of the TPP (Trans-Pacific Partnership) (Inside US Trade, March 2012).

you what to really put the kibosh on Phillip Morris? QUIT SMOKING and don’t be a whoos about it…cold turkey. And let the smokers in your life know they stink and you don’t want them around you till they ‘clean up’

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About this blog

The Croakey blog is a forum for debate and discussion about health issues and policy. It is moderated by Melissa Sweet, a freelance journalist with a personal and professional bent towards public health perspectives. Regular contributors include members of the Crikey Health and Medical Panel.